This proposal requests renewed funding to continue our investigations of the pathophysiology of type 2 diabetes (T2DM) in youth. During the previous cycle, we studied the role of insulin resistance and beta-cell secretion in youth with impaired glucose tolerance (IGT). These studies revealed: 1) A high prevalence in IGT and the metabolic syndrome in obese youth (NEJM 2002 and 2004); 2) Adolescents with IGT have profound peripheral insulin resistance associated with increased intramyocellular (IMCL) and visceral fat, beta-cell dysfunction, and low adiponectin levels (Lancet, 2003). 3) In only two years, 30% of the obese youth transitioned from IGT to T2DM. This new proposal represents the natural progression of our research into the health effects of childhood obesity by addressing mechanisms related to the development of IGT. The specific aims are: 1) To determine whether treatment of obese adolescents with IGT with Rosiglitazone will restore normal glucose tolerance by improving insulin sensitivity and affecting lipid deposition. 2) To determine whether inadequate beta-cell compensation to insulin resistance is present in obese subjects with normal glucose tolerance. To unmask early beta-cell dysfunction, we will assess insulin secretion in response to different stimuli (hyperglycemia, GLP-1, and arginine) and use mathematical modeling of c-peptide to determine insulin secretion in a selected sample of obese subjects with a high vs. a low Disposition Index. 3) To characterize the metabolic phenotype of obese subjects presenting with Non-Alcoholic Fatty Liver Disease (high ALT) and compare them to weight-matched controls. We will also determine in a longitudinal study if NAFLD predates IGT in obese adolescents. To accomplish these aims, we will use glucose clamps, stable isotopes kinetics, and MRI and 1H-NMR imaging. The study proposed here will not only provide further insights in the pathophysiology of T2DM in obese youth but will serve as a template for a large intervention study for the prevention of T2DM in this group.